ExpertMedium1 markMultiple Choice
CPA · Question 56 · Area 4: Entity Taxation
Which of the following members of an LLC is most likely subject to self-employment tax on their share of LLC ordinary income?
Which of the following members of an LLC is most likely subject to self-employment tax on their share of LLC ordinary income?
Answer options:
A.
A member who is a passive investor with no management rights.
B.
A member who actively participates in the management of the LLC.
C.
An S Corporation that is a member.
D.
A limited partner in a limited partnership.
How to approach this question
General Partners/Active LLC Members = SE Tax on everything. Limited Partners/Passive Members = SE Tax only on Guaranteed Payments for services.
Full Answer
B.A member who actively participates in the management of the LLC.✓ Correct
An LLC member who actively participates in management is treated analogously to a general partner and is subject to self-employment tax on their distributive share of ordinary income.
Common mistakes
Thinking all LLC members are exempt from SE tax.
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